Merriam-Webster defines it as “a stupid person”, while the New Oxford American Dictionary gas “(dated) a silly or foolish person (esp. as a general term of abuse)”. The connotation is really that of foolish, but I wouldn't use it nowadays.

The two sources differ on the origin, though neither is categorical: for Merriam-Webster, it is “probably short for obsolete noddypoll, alteration of hoddypoll (fumbling inept person)”, while NOAD says “perhaps from the verb nod + -y”.

When I was growing up in North London, it was a common term for a policeman, especially a motorcycle policeman.

Locally at any rate, it's a term for shots of a TV interviewer to be edited-in to a story to show their agreement with, understanding of or sympathy with the interviewee. Often also applied to the obligatory background party hacks showing universal agreement with or endorsement of their political masters and mistresses.

It also has some application in the "adult movie" industry, or so I am led to believe.